COVID‐19, ESG investing, and the resilience of more sustainable stocks: Evidence from European firms

Abstract Following the COVID‐19 outbreak, orientation toward sustainability is a critical factor in ensuring firm survival and growth. Using a large sample of 1,204 firms in Europe during the year 2020, this study investigates how more sustainable firms fare during the pandemic compared with other firms in terms of risk–return trade‐off and stock market liquidity. We also highlight the drivers of the resilience of more sustainable firms to the pandemic. Particularly, we document that higher levels of cash holdings and liquid assets in the pre‐COVID period help these firms to perform and absorb the COVID‐19 externalities better than other firms. Our results are robust to a host of econometric models, including GMM estimations and several measures of stock market performance. These findings contribute to the theoretical and empirical debate on the role of the sustainability as a source of corporate resilience to unexpected shocks.


| INTRODUCTION
The COVID-19 pandemic has taken its toll on human lives and the real economy (Mirza et al., 2020;Reinhart, 2020), while financial markets worldwide grappled with significant disruptions .
On February 24, 2020-the first trading day after lockdown measures in Northern Italy-many stock exchanges have experienced their hardest times since the Great Financial Crisis of -2009(Ramelli & Wagner, 2020. In these circumstances, the pandemic has also highlighted more than ever the importance of the firm sustainability performance as one of the main drivers of the firm resilience to unexpected shocks (Albuquerque et al., 2020;Barro et al., 2020;Koçak et al., 2021;Ramelli & Wagner, 2020) by attracting the interest of consumers, investors, 1 asset managers, and policymakers as well as scholars (Amundi Asset Management, 2020;Cunha et al., 2021; Global Sustainable Investment Alliance, 2020). On the one hand, national and central governments spurred the sustainable transition by including environmental and social priorities into crisis management at the national level (JP Morgan, 2020;Wells Fargo, 2020). 2 On the other hand, asset managers played a central role prioritizing the integration of ESG factors into investment solutions in line with the fast-growing interest and changes in preferences of international investors (Friede, 2019;JP Morgan, 2020).
In this context, several studies have investigated the firm stockmarket performance considering their orientation toward many aspects of sustainability by finding inconclusive results and discrepancies. Bae et al. (2021) find no evidence that corporate social responsibility affect stock market returns during the pandemic. Garel and Petit-Romec (2021) find that more environmentally friendly firms are likely to experience better stock returns, while Albuquerque et al. (2020) find that non-financial firms with higher environmental and social impact scores show higher returns and lower return volatilities.
The reason for such a lack of consensus might be driven by factors related to the sample period under investigation (for instance, first quarter of 2020 rather than specific time windows of the pandemic), the geographical area under consideration (for example, US firms rather than EU firms), different econometric strategies as well as the type of economic agents considered by prior studies (i.e., financial firms and non-financial firms). Similar to our research, Ding et al. (2021) find that more sustainable firms experienced a milder drop in their weekly stock returns than other firms. However, in terms of econometric setup, they rely on weekly data and cover a period from the beginning of January through the end of May 2020. Notably, none of the prior studies examines the link between the firm sustainability performance and stock market performance during the whole year of 2020 (from January 2020 to December 2020) by using different constituent pillars of the ESG ratings (Koçak et al., 2021), different statistical strategies (Cunha et al., 2020), different economic agents (financial and non-financial firms), and different geographic areas. For instance, most of them are either one-country setting studies (Albuquerque et al., 2020;Aslam et al., 2021;Atif & Ali, 2021;Zhou et al., 2022) or sector-specific (Bhandari et al., 2022). Moreover, although Ding et al. (2021) consider a sample of 6700 firms across 61 economies, our sample is more homogenous in terms of the institutional framework since we focus on Western Europe (1,204 firms).
Furthermore, we are also the first to study the implications of the COVID-19 spread in relation to the firm's stock liquidity. Hence, we seek to respond to the following research questions: how do highly rated ESG score firms perform during the COVID-19 shock? Why do they perform better than other firms during a pandemic shock?
Hence, the contribution of this paper to the extant literature is threefold. First, we examine the effects of COVID-19 on the more sustainable firms' stock market performance. While there is already literature on the effects of each pillar of the ESG rating on the financial performance (Barnett & Salomon, 2012;Freeman & Reed, 1983;Margolis et al., 2009;Porter & Kramer, 2006;Schnippering, 2020;Semenova & Hassel, 2008;Ullmann, 1985;Waddock & Graves, 1997), there is no evidence on the performance of more sustainable firmsfinancial and non-financial firms-during the whole and most feverish period of the pandemic (2020) using daily data. Since our results suggest firms with higher ESG scores perform better than other firms during the pandemic, this evidence is also coherent with the view that sustainability performance might serve as an insurance-like instrument against adverse economic events (Godfrey, 2005;Godfrey et al., 2009).
Second, we also speak to the literature on the firm resilience to unexpected economic shocks (Albuquerque et al., 2020). Notably, we investigate whether the better stock market performance of highly rated ESG score firms is related to either the firm's ex-ante liquidity conditions or firm profitability in the pre-COVID period. Our estimates suggest that the more sustainable firm resilience is built on the ex-ante liquidity conditions, which matter not only for firm financial obligations, but also to absorb the COVID-19 externalities.
Third, this research is one of the first attempts to provide novel evidence on the relationship between firm sustainability and stock market performance in European countries. Past studies focus mainly on the US market (among others, Albuquerque et al., 2020;Ramelli & Wagner, 2020). Yet, this facet provides us an important space for contribution for two reasons. On the one hand, as well as institutional, macroeconomic, and market differences between United States and Europe (Allen et al., 2004), Europe is committed to the UN's 2030 Agenda, aimed at the climate-neutrality by 2050, and is one of the most active players toward the Sustainable Development Goals (SDGs). 3 On the other hand, the then US President-Donald Trumpencouraged local governors to terminate local stay-at-home restrictions, while European countries showed more proactive management of the pandemic mobilizing promptly financial resources to households and corporates to contain the economic effects. 4,5 We find two important results. First, we find that more sustainable firms have a better stock market performance than other firms during the pandemic since they show higher market returns, lower volatilities, and higher stock market liquidity. We refer to the latter variable as the ease with which a stock may be converted into cash without incurring losses in the market value, often under-investigated in previous studies even if investors show a liquidity search behavior in the stock-picking process (Amihud & Mendelson, 1989). Moreover, this result is stronger when we account for the type of the economic agent considered (for instance, financial firms, non-financial firms, and the exclusion of oil-related firms' observations), firm heterogeneity (firm-fixed effects), the daily Fama French, and daily macroeconomic factors. We also allow for the dynamic endogeneity in our estimates.
Second, we highlight the mechanism through which highly rated ESG score firms perform better than others during the pandemic crisis. Particularly, our findings suggest that more sustainable firms retaining higher levels of cash holdings and liquid assets in their balance sheets in the pre-COVID period are more likely to absorb better than others the pandemic shock. This result is in line with Ding et al. (2021). Interestingly, this finding is stronger for financial firms rather than non-financial firms. This paper is organized as follows. Section 2 describes the related literature and illustrates the hypotheses development. Section 3 introduces the methodology and the data used for our main tests. Section 4 discusses the results, robustness tests, and extensions. Section 5 reports our concluding remarks.

| Literature review
This paper is related to two different strands of literature. The closer strand is the bourgeoning body of research on the impact of the COVID-19 pandemic on financial markets (Ramelli & Wagner, 2020;Zhang et al., 2020). The COVID-19 has had significant implications for global financial markets. Most studies highlight that during the COVID-19 pandemic shock, because of the market crash, stock prices experience negative returns and higher volatilities (Ashraf, 2020;Erdem, 2020;Mazur et al., 2020;Zhang et al., 2020). However, Ramelli and Wagner (2020) and Albuquerque et al. (2020) find that stock price movements follow different paths during each phase of the COVID-19 outbreak. Furthermore, previous studies underline that stock sensitivity to this pandemic may vary because of several factors, such as sector elasticity to the COVID-19 (Mazur et al., 2020;Ramelli & Wagner, 2020), trade interconnections either with China or with other countries most affected by the pandemic (Ding et al., 2021;Ramelli & Wagner, 2020), and the country degree of freedom (Erdem, 2020).
The second strand of the literature that this paper is referred to is the broader body of studies related to the relationship between firm sustainability and firm performance (Minutolo et al., 2019;Qureshi et al., 2020;Xie et al., 2019). This literature postulates fragmented findings invoking different theoretical frameworks, such as the stakeholder theory, 6 the resource-based view (Bhandari et al., 2022), 7 and the legitimacy theory (Friede et al., 2015;Whelan et al., 2021). 8 For instance, Vishwanathan et al. (2020) suggest that sustainabilityoriented initiatives aimed at supporting either the stakeholder reciprocation or the firm innovation capacity lead to higher financial performance, while Dorfleitner et al. (2018) suggest that the effect of sustainability-oriented initiatives is more pronounced in the long-term run rather than in the short-term run.
Yet, some studies also support the view that firm sustainability orientation is not necessarily associated with a better corporate financial performance (Friede et al., 2015). Revelli and Viviani (2015) and Humphrey et al. (2012) find no evidence that firms with higher ESG ratings have a better risk-adjusted performance. Di Giuli and Kostovetsky (2014) and Lys et al. (2015) find that increases in the CSR scores and expenditures are associated with lower corporate financial performance. Plausible explanations for this evidence are related to the managerial entrenchment (Surroca & Trib o, 2008) and potential agency problems in the firm philanthropy activities (Masulis & Reza, 2015).

| Hypotheses development: COVID-19 cases and deaths, ESG ratings, and stock market returns
The onset of the COVID-19 severely affects financial markets and firm stock performance. Stock market performance sensitivity to economic shocks may change in relation to the firm sustainability performance (Albuquerque et al., 2020). This evidence is well-supported in the literature considering both financial and non-financial firms and different economic shocks occurred in the financial system. For instance, Lins et al. (2017) demonstrate that firms with higher social capital, proxied by the firm's corporate social responsibility, show higher stock returns than firms with lower social capital during the last 2007-08 financial crisis. This result is also confirmed by Cornett et al. (2016) and Cheema-Fox et al. (2021). Albuquerque et al. (2020) show that the better market performance is because firms with higher ESG scores are more resilient to the shocks because of customer and investor loyalty (Albuquerque et al., 2019). In turn, this view is also coherent with Whelan et al. (2021), suggesting that these stocks better protect against the downside risk for the sake of the portfolio construction. Additionally, in the spirit of Ferrell et al. (2016), given that higher ESG scores reflect both business strategies concerning ESG factors and firm quality of the top-management, it is also plausible that well-governed firms might have a better performance during the pandemic and investors might prefer having stocks of these firms in their portfolios. This would shift investors' preferences toward stocks of firms with higher ESG scores and enhance their stock market performance. This is coherent with prior studies on flight-to-quality, 9 namely, the possibility that when the uncertainty over financial markets rises, investors shift their portfolios from riskier to less risky assets during economic downturns.
In contrast with this set of studies, there is also some evidence according to which the relationship between firm sustainability and stock market performance is not necessarily positive. For instance, Demers et al. (2021) find that firms with higher ESG ratings have a lower market performance than other firms during bad states of the economy, while Bae et al. (2021)

| METHODOLOGY AND DATA
This section provides a detailed description of the methodology and the data set, and then it describes the summary statistics.

| Methodology
In the spirit of Erdem (2020), we first correlate the firm's daily stock performance (Perf ) with the corresponding COVID-19 confirmed cases (Cases) by using the following panel data model regression: where i indexes for the stock returns of the firm i and t indexes for the trading days.
Our empirical framework uses several variables of the market performance measured over the period starting from January 1, 2020 to December 31, 2020: daily log-returns (Raw returns), the marketadjusted returns (Market-adjusted returns), the excess returns (Excess returns), and the 5-day moving volatility (Volatility). The daily log returns for each stock i on day t are calculated as follows: where Price i,t stands for the closing price of stock i in day t.
Second, we rely on Market-adjusted returns defined as the difference between the log-returns of the firm stock prices and the logreturns of the reference national market index. Third, we employ Excess returns, calculated as the difference between the daily return earned by a given stock minus the risk-free rate. In line with French (1992, 1993), we use the short-term government treasury bills (Risk Free Rate) as a risk-free asset. More formally, we estimate excess returns according to the following formula: The advantage of this measure lies in the fact that it compares the stock market performance with a risk-free alternative. Thus, investors would prefer investments with a positive excess return since the riskier investment strategy provides a higher reward than they could obtain if investing in a risk-free asset.
Then, we calculate the 5-day moving return volatility (Erdem, 2020) as where Returns stands for the mean return of stock i.
Hereafter, we turn our attention to three key variables of our estimation procedure (Highly rated ESG firm 2019 , Cases, and Deaths). First, in line with Albuquerque et al. (2020), Highly rated ESG firm 2019 is a time-invariant dummy variable that takes the value of one if the firm has an ESG rating higher than the median firm of the population of EU-firms in 2019 and zero otherwise. This allows us to exclude any simultaneity concerns and spurious correlation with the outcome variables and understand how highly rated ESG firms in 2019 step into the pandemic crisis. Then, we include Cases, which is estimated as the log-growth of confirmed coronavirus cases in the country c, where the firm has its headquarters in the day t. We use the following formula: In some specifications, we also replace the variable Cases with Deaths, which is similarly defined as the daily log-growth of deaths in the country c in the day t: Deaths i,t ¼ ln COVID À 19 Deaths c,t =COVID À 19 Deaths c,tÀ1 ð Þ ð 6Þ

| Data
This study relies on a data set of all non-financial and financial companies having an available ESG rating in Refinitiv and listed in the EU-14 European countries (Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, and Sweden) and the United Kingdom (Cardillo et al., 2021). We choose a sample of EU-14 countries and the United Kingdom, because they share both a uniform financial regulatory framework and a similar government monitoring on listed firms (Onali et al., 2016;Pattitoni et al., 2014). The final sample includes 1,204 European firms (financial firms = 375; non-financial firms = 829) and 227,923 firmday observations, as suggested by Table 1 and Table 2.
We collect data from multiple data sources. First, we collect information on stock prices from Datastream. Since we rely on Fama French factors in some robustness tests, we download information on the firm's stock prices in US dollars rather than euros. Second, we borrow information on the firm's ESG scores from Refinitiv database (Ding et al., 2021). In comparison with other ESG rating providers (Widyawati, 2020), Refinitiv, as well as being one of the largest providers of ESG performance for firms, shows a better coverage of the European market than other providers (for instance, KLD). Furthermore, it also presents an economic estimate about the firm's ability to create shareholder value and contribution to sustainable growth (Berg et al., 2020;Dorfleitner et al., 2015). Finally, Refinitiv considers a most extensive range of indicators and dimensions to construct each constituent component of the aggregate indicator related to firm sustainability performance (Berg et al., 2020;Dorfleitner et al., 2018). 10 Finally, we also collect information on COVID-19 cases and deaths from the Oxford University COVID-19 Government Response Tracker. In Table 5, we repeat our main regression analysis including firm-fixed effects. The results reiterate previous results reported in (3) (3)    (Acharya et al., 2014). Thus, we split our sample into financial and non-financial institutions and re-run our regressions in Table 4. Note: This table reports the results for the two-step GMM estimates for stock returns and volatility for the period January 2020 to December 2020. The dependent variables are daily log-returns (Raw returns), market-adjusted returns (Market-adjusted returns), excess returns (Excess returns), and the 5-day rolling return volatility (Volatility) respectively. We also report the dynamics of the dependent variables (two lags). Highly rated ESG firm 2019 is a dummy variable taking the value of one if the firm has a ESG rating higher than the median ESG score of the population of listed firms in the year before the COVID-19 pandemic (2019). Cases variable is the daily log-growth of confirmed coronavirus cases in the country c in the day t. Columns (1) to (4) report the results for the full sample. Columns (5) to (8) report the results for non-financial firms (panel A). Columns (9) to (12) report the results for non-financial firms by excluding oil-and energy-related firms (panel B). Columns (13) to (16) report the results for financial firms (panel C). Robust t statistics are reported in parentheses. *p < 0.1. **p < 0.05. ***p < 0.01.
T A B L E 9 COVID cases and deaths growth and stock market liquidity of highly rated ESG stocks

FF and policy indicators
Note: This table shows the panel regression results for the stock liquidity for the period January 2020 to December 2020. The dependent variable is the bid-ask spread (Bid-ask spread). Highly rated ESG firm 2019 is a dummy variable taking the value of one if the firm has a ESG rating higher than the median ESG score of the population of listed firms in the year before the COVID-19 pandemic (2019). Cases variable is the daily log-growth of confirmed coronavirus cases in the country c in the day t. Deaths is the daily log-growth of deaths in the country c in the day t. Columns (1) and (2) report the results for the full sample. Columns (3) and (4) report the results for non-financial firms (panel A). Columns (5) and (6) report the results for non-financial firms by excluding oil-and energy-related firms (panel B). Columns (7) and (8) report the results for financial firms (panel C). Regressions include day, sector and (only for columns (9) and (10)) firms fixed effects because ESG ratings differ across sectors. Regressions in columns (11) and (12)  Note: This table reports the results for the relation between firm performance, ESG score, and firm-specific characteristics. The dependent variable is the buy-and-hold stock returns (BHR) during the whole COVID-19 crisis (Erkens et al., 2012). Highly rated ESG firm 2019 is a dummy variable taking the value of one if the firm has a ESG rating higher than the median ESG score of the population of listed firms in the year before the COVID-19 pandemic (2019). All the controls are referred to the period before the COVID-19 crisis (accounting year: 2019). Size 2019 is the log of the firms total assets. Debt Ratio 2019 is the ratio between total debt and total assets. ROA 2019 is the return to assets. Cash Ratio 2019 is the total amount of Cash and liquid assets divided by total assets. Fixed Ratio 2019 is the ratio between total fixed assets and total assets. Intercept included but not reported. Specifications include sector-fixed effects and country-fixed effects. Robust t statistics are reported in parentheses. *p < 0.1. **p < 0.05. ***p < 0.01.

| Controlling for Fama French factors, momentum, and government policies
Thus far, we have correlated the firm's stock performance with the national COVID-19 cases and deaths by allowing for systematic differences across sector types and firm heterogeneity. However, other daily firm-specific economic conditions might drive our results. We address this issue in two ways. First, we include the Fama French factors and the momentum factor for European stocks. 15 Second, we include daily proxies for public authorities' activities to backstop their national economies, such as stay-at-home measures and the economic support provisions to households and firms (Narayan et al., 2021;Ramelli & Wagner, 2020 (Hale et al., 2021). 19,20,21 (Baig et al., 2021;Bannigidadmath et al., 2022).
Conversely, containment and health measures attract positive returns in line with the perspective that investors positively evaluate investments in vaccines and healthcare systems (Rouatbi et al., 2021).

| Dynamic endogeneity
In this subsection, we are concerned about the potential dynamic endogeneity. Although COVID-19 cases and deaths are plausibly exogenous to the corporate policies, there might exist a potential dynamic endogeneity (Chhaochharia & Laeven, 2009) (Chhaochharia & Laeven, 2009), and finally, we use the dependent variable's first two lags as explanatory variables to run a dynamic model (Arellano & Bond, 1991).
We report the results in This feature matters for investors, especially during the adverse states of the economy, where the increased volatility and uncertainty deteriorate the overall liquidity of financial markets (Baig et al., 2021).
We focus on the bid-ask spread because as well as being suitable for many applications ranging from corporate finance to asset pricing and macroeconomics studies (Hasbrouck, 2009;Fang et al., 2009;Korajczyk & Sadka, 2008;Naes et al., 2011), it is also appropriate to detect potential frictions between the demand and supply sides for a given specific stock. In addition, this measure appears to be easier to interpret since more liquid stocks are more likely to show lower bidask spreads. We follow a similar specification in line with our evidence presented in Sections 4.1 and 4.2. Hence, we explore the firm-specific characteristics in the pre-COVID-19 period and focus on two potential and plausible channels (not mutually exclusive) explaining why some highly rated ESG score firms might perform better than other firms. The first channel we refer to is the one we define as the liquidity channel. This channel finds its foundation in the paper of Ding et al. (2021) and Albuquerque et al. (2020). The authors consistently demonstrate that the better market performance of some firms during the pandemic might depend on the ex-ante liquidity conditions. In this way, these firms should be more likely to absorb economic shocks. In our setup, we check whether firms with higher ESG evaluations, more cash-holdings, and liquid assets in the pre-COVID period (2019) have better performance during the pandemic.
Second, we recognize the existence of a performance channel. The literature on the performance channel posit two alternative explanations. On the one hand, Beltratti and Stulz (2012) suggest that the better stock market performance in the financial crisis might be due to a reversal in the pre-crisis performance. Thus, in line with this argument, we might also speculate that firms with higher ESG scores and higher performance might be bad performers in the pre-COVID period. On the other hand, the alternative view advocates that the firms with higher ESG scores perform better during the pandemic because they were already more profitable than other firms in the pre-pandemic period. The consideration of such an argument is also important because it might help to exclude potential self-selection biases. 23 For this further analysis, we estimate the firm stock market performance during the whole year of 2020 as a function of the prepandemic firm characteristics (2019). We first rely on the one-year buy-and-hold stock returns (Erkens et al., 2012;Griffin & Lemmon, 2002) related to 2020. This measure depicts the expected return of an investor if she/he bought the stock on the first day of January and held it until the last day of December 2020. 24 Then, we regress this variable on the firm-specific characteristics including firm cashholdings and short-term investments, profitability, size, fixed assets, and leverage as well as the firm performance sustainability. We also introduce two interactive terms, obtained as the product between firm profitability and firm performance sustainability (Highly rated ESG firm 2019 dummy), and the interaction between firm liquidity conditions and firm performance sustainability. Since we run a cross-sectional analysis, we include country and sector dummies to account for the within-sector and within-country variation in the corporate traits. Our estimation procedure is as follows: where BHR 2020 stands for buy-and-hold stock returns, while Cash of cash and liquid assets divided by total assets (Ding et al., 2021). We also include a standard set of control variables, such as Size 2019 (the log of the firm's total assets), Fixed Ratio 2019 (the ratio between total fixed assets and total assets), and Debt Ratio 2019 (the ratio between total debt and total assets) to account for the firm's structure of its assets, leverage, and performance in the pre-COVID 19 period. 25 Table 10 reports the results.
Our finding supports the view that the ex-ante liquidity conditions matter to explain firm stock market performance. In fact, the coefficient on Cash Ratio 2019 * Highly rated ESG firm 2019 is positively and statistically significant across all specifications (5% or better), suggesting that firms with higher ESG scores and higher ex-ante liquidity conditions perform better than other firms. This evidence is consistent with the idea that higher cash holdings permit to absorb the pandemic crash. However, the ex-ante liquidity conditions matter more for financial firms.
In terms of economic magnitude of our results, if we consider more conservative estimates (Column 4) referring to the whole sample, we obtain that one standard increase in the firm pre-COVID period of cash holdings is associated with an increase in the buy-and-hold stock returns by approximately 8.14 percentage points. We also provide some evidence on the different sensitivity of the buy-and-hold stock returns (predicted marginal effect) to several thresholds 26 of Cash Ratio. Figure 1 highlights the results indicating that ex-ante liquidity conditions are more prominent for financial firms than non-financial firms to absorb economic shock, such as the COVID-19 pandemic.
Next, our results exclude the existence of a performance channel.
Indeed, the coefficient on the interactive term-ROA 2019 * Highlyrated ESG firm 2019 -enters all regressions with a non-significant coefficient. This is also important because it excludes that better performing firms with higher ESG scores in the pre-COVID are more likely to perform better during 2020.

| CONCLUSIONS
While recent academic studies have investigated the implications of COVID-19 pandemic shock on the financial markets (among others, Albuquerque et al., 2020;Erdem, 2020;Ramelli & Wagner, 2020;Zhang et al., 2020), there is currently no comprehensive evidence about the linkage between the COVID-19 pandemic shock, firm sustainability, and stock market performance.
Exploiting an extensive data set of 1,204 (financial and nonfinancial) firms from 15 European countries, we show that firms with higher ESG scores perform better than low-rated ESG firms when public authorities announce their national number of confirmed cases and deaths due to the COVID-19. Then, after a host of robustness checks based on different specifications accounting for potential endogeneity, our results hold. Second, we also highlight the mechanism through which more sustainable firms fare better than other firms during the pandemic. Our findings exclude the existence of a performance channel, namely the post-COVID performance of more sustainable firm is function of the pre-COVID profitability. However, they underline that firms with higher ESG scores perform better than other firms if they retain higher cash holdings and liquid assets necessary to absorb the pandemic externalities.
On the one hand, our outcomes first contribute to the literature on the performance of high ESG score securities by highlighting their usual risk-return characteristics and stock market liquidity. On the other hand, we also contribute to the literature related to the channels through which more sustainable firms may build their resilience to unexpected shocks.
Hence, our results prescribe important implications for investors and firms. First, according to our estimates, investors consider firm sustainability as a valuable aspect since these firms show a better stock market performance during the COVID-19 pandemic. In addition, they also benefit from a higher stock liquidity, which is another important attribute for securities' evaluation because the potential investment illiquidity may trigger and exacerbate the losses in investors' portfolios. This evidence is coherent with the need to analyze other aspects of the asset prices rather than the typical risk-return trade-off in the investors' evaluation (Cunha et al., 2021).
Second, the orientation toward sustainability is a critical factor for firms to improve financial performance and generate shareholder value (Albuquerque et al., 2020), and more in general, all stakeholders' wealth (Porter & Kramer, 2006). On the one hand, by addressing investors' preferences toward sustainability, firms are likely to attract funds for their investments and support their growth processes. On the other hand, the integration of ESG factors and related risks in the business strategy and models might help them to build their resilience and increase their survival odds during adverse states of the economy.
These insights might become increasingly relevant in case of similar and unexpected shocks. In this context, firms should accelerate their transition to more sustainable business models.
Nevertheless, our evidence suggests that firm sustainability on a stand-alone basis does not ensure resilience and competitive advantage if not combined with sound financial fundamentals, such as a flexible financial structure. This aspect is also coherent with Broadstock et al. (2019) and points to discourage potential greenwashing practices (Arvidsson et al., 2022).
However, we recognize that there might be other channels through which firms may build their resilience, and this facet remains an open question for scholars. At the same time, we also acknowledge that the firm's liquidity is not the panacea for all the economic scenarios (Atif et al., 2022). During less adverse states of the economy, the retainment of excessive cash holdings and more liquid assets might increase the firm opportunity costs eroding profitability and growth opportunities. These considerations raise other relevant questions for scholars to explore.
Overall, our evidence corroborates current cross-sectoral public policies to promote sustainable development concerning the energy, environment, economy, and development cooperation aimed at ensuring the resilience of the entire system.

ACKNOWLEDGMENTS
We are extremely thankful to the editor, two anonymous referees,

CONFLICT OF INTEREST
All the authors declare no conflict of interest.
3 Scholars underline several difference between the United States and Europe, such as such as opaqueness and transparency of the financial markets (Gutiérrez & Philippon, 2018), degree of social inclusion in public services, and different degree of labor market stickiness (available at: https://www.clevelandfed.org/en/newsroom-and-events/publications/ economic-commentary/economic-commentary-archives/2011economic-commentaries/ec-201111-labor-market-rigidityunemployment-and-the-great-recession.aspx). 4 One example is the Italian government that was the first national authority to impose stay-at-home measures (such as generalized lockdowns and quarantine measures) and restrict the movements of its habitants except for healthcare services and work commuting. Additionally, on March 19, 2020, the European Commission adopted a Temporary Framework for State aid measures that allows member states more flexibility to support the economy during the pandemic. On July 21, 2020, the European Council finally reached an agreement on The Next Generation EU (formerly denominated Recovery Plan), the largest stimulus package ever financed in Europe. The value of this plan is around 750 billion euros and is designed to boost the economic recovery through 360 billion euros in loans and 390 billion euros in grants (https://ec.europa.eu/info/strategy/recovery-plan-europe_en). 5 https://ec.europa.eu/info/strategy/priorities-2019-2024. 6 The stakeholder theory suggests that the better corporate financial performance may be ascribed to a higher firm's ability to manage a large array of stakeholders directly and indirectly linked to the firm actions, such as employees, civil society, customers, investors, and providers (Freeman & Reed, 1983). 7 The firm ability to achieve financial success depends on internal resources (for instance, employees and intangible assets). 8 Based on the assumption that there is a social contract between firms and the society, firms have some incentives to divulge their social responsibilities and commitment to their set of stakeholders to achieve a competitive advantage.
9 Some evidence supporting our hypothesis comes from the mutual fund literature. During periods of economic downturns, highly rated ESG mutual funds outperform than low rated ones (Hawn et al., 2018;Ruf et al., 2019). 10 We summarize the differences in the construction of ESG scores between the three leading providers in Appendix S1.A. 11 The inclusion of day fixed effects in our estimation procedure makes the estimates for Raw Returns and Excess returns equal. This circumstance is not verified when we include Fama and French factors rather than day fixed effects.
12 However, the coefficient becomes statistically significant at 5% or better for all the measures of stock market performance (Raw returns, Market-adjusted returns, and Excess returns).
13 In our econometric setup, we rely on the following definition of corporate culture in line with Liao (2018), where the author refers to the corporate culture as "… the specific values and basic beliefs rooted in a firm that guides all the activities and behavior of that firm affecting innovation" (p. 1369) and performance.
14 https://www.forbes.com/sites/davidblackmon/2020/12/17/2020-inreview-one-of-the-oil-and-gas-industrys-worst-years-approaches-amerciful-end/. 15 We consider the daily excess return on the market (Rm-rf ). We include the Small Minus Big factor (SMB), which is defined as the difference between the average return on small-capitalization portfolios and the average return on large-capitalization portfolios. Then, we consider High Minus Low factor (HML), calculated as the average return on portfolios of high book-to-market stocks minus the average return on portfolios of low book-to-market stocks. We also add the Conservative Minus Aggressive factor (CMA), namely the difference between the average returns on two conservative investments portfolios and the average return on the two aggressive investment portfolios and the Robust Minus Weak factor (RMW) defined as the average return on two robust operating profitability portfolios minus to which the average return of two weak operating profitability portfolios is subtracted. Finally, we also control for the momentum factor (WML) obtained as the difference between the equal-weighted average return for two winner portfolios for the European region and the equal-weighted average returns on two loser portfolios. The rationale for the inclusion of these variables is that better (worse) economic conditions should lead to higher (lower) returns (Carhart, 1997;Fama & French, 2015). 16 Containment and Health Index is a proxy for government activities in contact tracing, investments in the healthcare system and vaccines. 17 Stringency Index refers to how strong national governments impose lock-down measures aimed at restricting people mobility within the national borders. 18 Economic Support Index considers all public policies aimed at supporting the households and corporates income.